Start-up finance – should you ever turn to the bank of mum and dad?


Looking back, I was one of the lucky ones.

When I started setting up my business, I needed some initial investment. Not much admittedly, as I set up all from the comfort of home. But still – enough to get me going.

Well, I walked into the bank, shook hands with the manager and, hey presto, walked out with my start-up loan.

It was a brilliant day. The day I knew my business was well and truly off the ground.

Nowadays, getting access to finance – particularly from high street banks – isn’t so easy as wandering in to your local HSBC armed with the gift of the gab.

Indeed – from what I’ve seen access to loans is one of the biggest challenges start-ups and entrepreneurs now face.

There are also a growing number of alternative funding methods available – such as crowd-funding platforms (I’m doing a piece on these tomorrow – keep your eyes peeled).

But a study by Bibby Financial Services found more than one in five small firms have turned to family and friends for loans after struggling to secure finance from high street banks.

The company said the number of small businesses applying for external funding fell to 31 per cent in the last 12 months – with 29 per cent failing to secure bank finance or feeling deterred from applying because they expected to be rejected.

Family and friends? I’m really not sure about this. I’d never say never of course, but my feeling is that access to finance should come from traditional and alternative lenders.

In some cases family cash investment can be a feud waiting to happen and there are all sorts of problems associated with it.

Yet we know it is still difficult to secure investment from standard sources. Nevertheless, there are lots of things entrepreneurs can do to enhance their position – effective research, a sound business plan.

What do you think though – should you ever mix business with family?

Posted by The Secret Businessman